Title

The Currency Board in Bulgaria: Is It the Best Solution?

Authors

Rayna Paunova

Document Type

Article

Publication Date

2004

Abstract

Currency boards have always been a subject of debate. While they may significantly improve the quality of the national currency, they block discretionary monetary power and may cause severe economic problems. Currency Board was introduced in Bulgaria in July 1997. A combination of hyperinflationary and banking crisis forced the country to sacrifice monetary independence for the sake of attracting investment and promoting confidence. This research project analyses the dilemmas Bulgaria faced before adopting the CBA and the consequences of the new currency regime. It estimates whether the currency board was the best option for Bulgaria in 1997 and if it still is the appropriate policy for the country. After examining the advantages and disadvantages of fixed exchange rate regimes and currency board arrangements, I look at the specifics of the Bulgarian situation and the appropriateness of fixing the exchange rate. This allows me to make an economic assessment of the outcome of the CBA. Finally, I suggest reforms based on the experiences of the Baltic countries and present alternative policy options as well as recommendations for future improvements. I conclude that the Currency Board was the best alternative for Bulgaria in 1997 because it helped elevate the crisis, reduced inflation, increased credibility, and stabilized the economy. In spite of all the negative consequences, the Currency Board still is the best option for the country as it maintains stability and ensures the otherwise fragile business and consumer confidence.

Advisor

J. Whitney

Department

econ

Support

Ford Research Fellowship

This document is currently not available here.

Share

COinS